New Hampshire Enacts New Law That Could Invalidate Non-Competition and Other Restrictive Covenants

Contributors

Related Solutions

We provide legal insight and practical solutions for one of the most complex and highly regulated areas of business.

Our HR Services Group combines a deep understanding of the HR marketplace and best practices with seamless access to quality legal resources. We serve companies navigating all facets of human resources management, systems, policy development and legal compliance. Whether clients require consulting, contract services, training and development programs, or strategic staffing assistance, our HR professionals have the experience to help meet their goals.

The HR Services Group is a team of senior-level certified HR professionals (non-lawyers), also with decades of combined experience who perform discrete HR projects and/or ongoing HR counseling and support for firm clients, including HR systems assessment and development, compensation and pay equity analyses, salary surveys, benefit plan assessment and design, talent acquisition, management training, affirmative action program development, compliance/audit support, and support for EEO efforts and development of diversity and inclusion programs.

Our HR consultants work to understand a client’s business plan and existing processes to design a customized menu of services that fits the company’s objectives and budget. From the challenges facing startups to the concerns of maturing companies, our HR professionals can provide comprehensive, timely and cost-effective solutions.

The HR Services Group guides program development and reporting (including EEO-1 and VETS-4212 reports), statistical analysis, self-audit monitoring support, and OFCCP audit support, teaming with our employment lawyers who bring affirmative action legal experience to ensure a unique complement of legal and HR proficiency for our clients at a highly competitive price point. Should a federal audit occur, our legal and HR affirmative action teams will jointly manage the audit process from the day the compliance review notice is received, through the many requests for information, possible on-site representation, and through closure, continually working to manage and minimize client risk at each step in the process. We are proud of our track record for successful closure of client audits. We stay on top of the changing regulations and guide clients in the planning and development of compliant programming and implementation. Additionally, the collaboration between our team of labor and employment attorneys and the human resources consultants provides clients with an invaluable resource for support and guidance in this area.

New Hampshire recently enacted new legislation which, despite its brevity, may have significant repercussions for the unwary employer seeking to enforce a restrictive covenant. The law (RSA 275:70), which took effect on July 14, 2012, reads:

“Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.”

Accordingly, employers must be timely in providing a non-compete, non-solicitation or non-disclosure agreement prior to or at the time of the offer of employment or change of job to the applicant or employee, or else it will be unenforceable. Clearly, the law's purpose is to provide adequate notice to applicants and employees so they can make informed decisions.

The statute leaves several critical questions unanswered. For example, it does not define what constitutes a “non-piracy agreement,” a phrase which is not typically used in the context of employment agreements. The term “piracy” conjures up images of economic espionage and employees stealing their employers' trade secrets and other proprietary information. However, a “non-piracy agreement” more typically refers to restrictive covenants against poaching the employer's employees and/or customers.

Likewise, the statute does not provide any clarification as to what change in the terms and conditions of a current employee's position constitutes a “change in job classification” under the law. This ambiguity creates uncertainty as to how broadly courts will interpret the term. Former employees seeking to evade their post-employment obligations are likely to argue that the phrase should be read to apply to a promotion, a new title, or any change in the employee's duties with a corresponding change in nomenclature.

Although a mere salary increase will probably not be enough to trigger the statute, for the avoidance of doubt an employer which includes a new non-competition provision as part of a stock option or similar agreement would be well advised to comply with the statute, to avoid a reviewing court deeming the restriction “void and unenforceable.” The statute will also apply in the context of mergers and acquisitions if the acquired employees are required to execute a new non-competition or non-piracy agreement for the benefit of their new employer.

Until the Legislature provides additional guidance, employers doing business in New Hampshire should ensure that any applicant who will be required to sign any type of restrictive covenant as a condition of employment (whether it be a non-competition, non-solicitation, non-disclosure, or similar type of agreement) receives a copy of the agreement at the same time the applicant receives the offer letter. Employers should also ensure that an existing employee who will be required to execute a new non-competition or similar agreement in connection with any type of change in job status also receives a copy of such agreement before or when the offer is made.

Offer letters should reference the attached agreement as additional evidence that the agreement was provided in compliance with the statute. Employers should also maintain records of all offers of employment made to prospective and current employees that require the execution of a restrictive covenant to evidence the date on which the agreement was provided.

So long as the procedural safeguards in the new law are followed, the legislation does not affect New Hampshire law regarding the enforcement of restrictive covenants. Employers are encouraged to consult with employment counsel for additional guidance regarding how to increase the likelihood that these agreements will be upheld.

Notice

Unless you are an existing client, before communicating with WilmerHale by e-mail (or otherwise), please read the Disclaimer referenced by this link.(The Disclaimer is also accessible from the opening of this website). As noted therein, until you have received from us a written statement that we represent you in a particular manner (an "engagement letter") you should not send to us any confidential information about any such matter. After we have undertaken representation of you concerning a matter, you will be our client, and we may thereafter exchange confidential information freely.